In a building associated with very old things, a group of descendants of Portuguese Catholics sat uneasily on a Tuesday morning in May 2016. The building is associated with a centuries old institution, the Catholic Church. It houses one of the oldest publishing houses in Sri Lanka, the Catholic Press, which printed its first church tabloid in 1866, the weekly Gnanartha Pradeepaya, still in circulation today. It is also the headquarters of the second-oldest company in Sri Lanka, Mackwoods Securities.
The five-storied building, a couple hundred meters from the congested Borella intersection in Colombo and next to the official residence of Sri Lanka’s only Catholic Cardinal, is old but not ancient. It has no elevator.
Here, members of the Mendis-Nonis family met for a special shareholder meeting to set up an extraordinary general meeting (EGM) for a later date. The boardroom is on one of the upper floors, but they met at the ground level conference room to avoid the stairs so two members of the family over eighty years old, one a director but both shareholders, can attend the meeting. With the gathered family were two non-related directors who had served the business for decades.
Their unease was caused by three people who were not in the room that day—one was a military strategist, the second a lawyer specializing in mergers and acquisitions, and the third an expert in restructuring failing companies.
Three members of the family who collectively held a majority of the shares of Mackwoods Securities wanted an extraordinary meeting to appoint these three to the board. But the other family members controlling the board voted to terminate the meeting.
The Mendis-Nonis family feud is over control of Mackwoods Group, which controls two public companies—Agalawatte Plantations and Mackwoods Energy, with combined assets of Rs5 billion and employing over 6,500 people, according to the firms’ annual reports. Agalawatte is heavily in debt. Its book value was Rs393 million at end-June 2016, with borrowings amounting to a little more than Rs1.1 billion and trade payables Rs1.4 billion. Mackwoods Energy’s book value was Rs762 million. Mackwoods Securities controls these public companies through a subsidiary, Mackwoods Private Limited.
[pullquote]Nirmali Samaratunga and her aunt and uncle as majority shareholders want to gain control of the board to restructure debt-ridden Mackwoods Securities, struggling due to alleged mismanagement by her brother Chris Nonis, the other shareholder, and three directors[/pullquote]
Mackwoods Securities Chairman Chris Nonis, who studied and practiced medicine in the UK for nearly two decades, is pitted in a legal battle against his sister Nirmali Samaratunga, a management accountant, and uncle Ricky Mendis, former chairman of Delmege Forsyth, for control of the company. The rest of the family members are divided in their allegiances.
Mackwoods was founded by N S O Mendis in 1957, when he bought over a British-owned company incorporated a century earlier. His decedents are now divided over controlling his company.
On one side is N S O Mendis’ son Fredrick (Ricky) Mendis, daughter Mary Varma and granddaughter Nirmali Samaratunga (niece to Ricky and Mary). According to the company website and court submissions, Nirmali Samaratunga is Joint Chairperson and Managing Director of Mackwoods Private Limited, a subsidiary of Mackwoods Securities that controls the two listed companies. On the other is N S O Mendis’ grandson Chris Nonis, Chairman of Mackwoods, and granddaughter Shalendra Ranaweera (Nirmali’s brother and sister).
Nirmali Samaratunga and her aunt and uncle, as majority shareholders, want to gain control of the board to restructure debt-ridden Mackwoods Securities, struggling due to alleged mismanagement by her brother Chris Nonis, the other shareholder, and three directors.
At the botched special meeting in May 2016, they proposed to call for an EGM to make the following appointments to Mackwoods Securities’ board: former Army Commander Daya Rathnayaka; Shraepathy Attanayake, a lawyer specializing in mergers and acquisitions; and Mano Tittawela, a businessman who had experience restructuring state-controlled People’s Bank as its one-time chairman.
Mary Varma had filed action in the High Court of Colombo against her nephew and Mackwoods Securities’ Chairman Chris Nonis, and the board seeking an interim order preventing the board from using its board majority to block the extraordinary general meeting. She alleged that her nephew was oppressing her rights as a director of Mackwoods Securities and mismanaging the company.
Chris Nonis believes his sister and uncle Ricky Mendis are the hands behind his aunt’s move.
“To my knowledge and belief, this purported action has been filed by the Petitioner (Mary Varma), who is aged 81 years, at the instance of the 6th and/or 7th Respondents (Ricky Mendis and/or Nirmali Samaratunga) with the intent to promote the illegal takeover of (Mackwoods Securities),” his filed submission to court says.
Chris Nonis, filing his objections, said his aunt’s petition to court was supported by his sister Nirmali Samaratunga and uncle Ricky Mendis to “promote the illegal takeover (of Mackwoods Securities) by strangers, the purported appointees to the board under the requisition, and to strip the (company) and its subsidiaries and related companies of their assets (by) corporate raiders”.
Chris Nonis denied mismanaging the family business or running personal companies that conflicted with the interests of Mackwoods Securities.
The court issued the interim order, allowing the shareholders meeting to proceed. Nirmali Samaratunga, her aunt Mary Varma and uncle Ricky Mendis, despite the setback in May, issued notice for an EGM to be held on July 7.
Chris Nonis, in turn, filed a separate petition in the Colombo High Court seeking to overturn the earlier interim order. He filed three other cases. The first disputing the shareholdings of his uncle Ricky Mendis and sister Nirmali Samaratunga, the second pleading for a restraining order on the three proposed board appointees, and the third seeking to restrain the actions of this sister Nirmali Samaratunga.
Family businesses are fundamentally different from any other business arrangement because family ties are deeper and more complex. It’s difficult to separate what belongs to the family and what belongs to the business. Disputes between family members over mundane things can easily spill over into the boardroom and become a bigger problem.
When it comes to a shareholder vote, Chris Nonis stands alone with a 29% stake in Mackwoods Securities. Nirmali Samaratunga with a 24% stake, aunt Mary Varma with 27% and uncle Fredrick Mendis with 7.2% have a 3:1 majority. The Mendis-Mackwoods Charity Fund holds the balance 10% in trust, but it is unclear who controls the trust.
However, the composition of the board seems to be in Chris Nonis’ favour – 4:2. Himself, his younger sister Shalendra Ranaweera, and the two directors not related to the family Lalith Fonseka and Lakshman Samarasinghe voted to terminate the special shareholder meeting in May 2016 against the two votes of Mary Varma and Nirmali Samaratunga.
[pullquote]The Mendis-Nonis family has always referred to the business as Mackwoods Group. Its website says Chris Nonis is Chairman of the Mackwoods Group of Companies, and his sister Nirmali Samaratunga is Joint Chairperson and Managing Director. The group comprises 20 other companies[/pullquote]
In 1841, Englishman William Mackwood left his boat behind to make his fortune planting and trading coffee in Ceylon, Sri Lanka’s name under British rule. A sea captain by profession, Mackwood soon learnt that land can be as treacherous as the deep blue.
The coffee blight later that century decimated the industry, but Captain Mackwood reversed his fortunes by getting into tea. For more than a century, the Mackwood family grew the business through some troubled times. The company survived the Great Depression of the 1930s, two world wars and the rise of nationalism, which ended with Britain conceding Ceylon’s self-rule in 1948.
Nine years after independence from British occupation, the Mackwood family sold the company to N S O Mendis, a lawyer who was the first Sri Lankan to acquire a British company incorporated in the UK in 1957.
Mendis had previously served as a Major in the Ceylon Garrison Artillery, and was soon becoming a successful entrepreneur. To his family, Mendis’ legacy is the Mendis-Mackwoods Charity Fund, a trust established to educate poor children.
When Mendis acquired Mackwoods, the company owned 40,000 acres of tea plantation. He diversified by acquiring and incorporating several trading companies.
In the early 1970s, a wave of nationalism hit the economy, with the government taking over assets of private companies. Mackwoods lost all its plantation assets, over 11 acres of prime land in Colombo and two hotels in Kandy (Queens Hotel and Hotel Suisse).
Mendis consolidated what was left and changed the name of the company to Mackwoods Securities in 1975. The company then had far fewer assets, but several of its trading companies were doing well.
The Mendis-Nonis family has always referred to the business as Mackwoods Group. Its website says Chris Nonis is Chairman of Mackwoods Group of Companies and his sister Nirmali Samaratunga is Joint Chairperson and Managing Director. The group comprises 20 other companies.
Court submissions show that the holding company is legally called Mackwoods Securities Private Limited. Because it is a private entity, it is not clear if all 20 companies listed on the website and court submissions are in fact subsidiaries. A large part of the ongoing legal dispute is over who controls what.
Public interest in the private company piqued when Chris Nonis sold Mackwoods Securities’ controlling stake in loss-making listed Agalawatte Plantations in July for Rs304 million to Browns Power Holdings at the market price of Rs20 per share. The company’s net assets per share amounted to Rs15.72, according to the published balance sheet at end-June 2016.
Court submissions reveal Mackwoods Securities owns a 99.4% stake in Mackwoods Private Limited, which in turn owns a 51% stake in Mackwoods Plantations; the balance 49% held by Malaysian investors. Through Mackwoods Plantations, the family owns a 61% stake in listed Agalawatte Plantations. Mackwoods Private Limited also holds a 60% controlling stake in listed Mackwoods Energy, which operates seven mini-hydro power plants.
Mackwoods’ majority shareholders appealed to the regulator, the Securities and Exchange Commission (SEC), that as a minority shareholder, Chris Nonis had no authority to sell the controlling stake in Agalawatte without shareholder approval. The SEC suspended the trade, but Browns Power filed a separate court case questioning the regulator’s suspension of the trade.
The majority shareholders of Mackwoods Securities also allege that the affairs of the subsidiaries and associates of company managed by Chris Nonis, his sister Shalendra Ranaweera, and the two directors not related to the family Lalith Fonseka and Lakshman Samarasinghe “are being conducted in a manner which is oppressive of its shareholders (Mary Varma, Ricky Mendis and Nirmali Samaratunga), and also constitute mismanagement”.
Mackwoods Group comprises around 20 companies, but it’s not clear how many of them are controlled by Mackwoods Securities, which is considered the holding company.
According to submissions filed in court, Chris Nonis claims that some these companies are related companies with common director boards, but remain financially independent from the holding company. Some of these companies were incorporated by his mother Sriyani Nonis, a former chairperson of Mackwoods Securities. “It was the wish and intention of the late Sriyani Nonis that her other children would also benefit from the business operations of Mackwoods Group,” Nonis told court.
After Mackwoods Securities’ founder chairman N S O Mendis’ demise his youngest daughter Sriyani Nonis, who qualified as a Barrister-at-Law at the Society of Gray’s Inn UK in 1962, was appointed to lead the business.
Shares of Mackwoods Securities were tightly held by N S O Mendis’ wife and two daughters, Sriyani and Mary Varma. Sriyani Nonis soon proved she was her father’s daughter.
She would diversify Mackwoods into new ventures in energy, hotels, manufacturing, insurance broking, export of single origin tea and palm oil production in joint ventures with listed companies John Keells and Aitken Spence.
Sriyani Nonis made a bid for listed Agalawatte Plantations, which managed 16 tea and rubber estates, during the government’s privatization of estates in the early nineties. Agalawatte managed 27,000 acres employing 9,800 people. Two years later, in 1995, Mackwoods acquired a controlling stake of the firm in partnership with Malaysian investors.
Sriyani Nonis was also heading several companies collectively known as Mackwoods Group, but not all of them it seems fell under the holding company Mackwoods Securities.
Annual reports of Agalawatte Plantations during 2010 to 2014 list 11 of these companies as having had dealings categorized as related party transactions every year with the listed firm. By December 2014, these 11 firms combined were due Rs419 million from Agalawatte Plantations and owed Rs227 million to the plantation company.
At least three of these companies, AEN Palm Oil, APL Teas and Taprospa Holdings, don’t list Nirmali Samaratunga as a director, leading her aunt Mary Varma to complain to court that these companies were being misused by Chris Nonis to siphon funds away from the family business.
“The only plausible explanation (for the Agalawatte losses) is that the 2nd and 5th respondents (Chris Nonis and Shalendra Ranaweera) are ether guilty of siphoning off monies from Agalawatte or are otherwise guilty of serious mismanagement,” she told the court in her plaint.
According to the 2014 annual report, these three companies owed the plantation firm Rs172 million. But Chris Nonis maintains that these companies are not controlled by Mackwoods Securities and don’t concern the other members of the family, and that the annual reports of the company had disclosed all related party dealings.
APL Teas was incorporated in 2003 by his mother Sriyani Nonis when she was chairperson to market and sell single origin teas from Agalawatte Plantations.
Tapropsa Holdings manages three plantation bungalows as hotels on Agalawatte Plantations’ property: Culloden Villa in Kalutara, and Labookellie Villa, Westward-Ho and Tymawr Villa in Nuwara Eliya. It owns three resort hotels in Beruwala, Tissamaharama and Jaffna with a combined 70 rooms. Mary Varma claims the company managed assets valued at Rs1 billion. The website of the company says all its properties are closed for refurbishment.
Taprospa Holdings owns a 60% controlling stake in Taprospa Resorts. Taprospa Resorts was controlled by Agalawatte Plantations before Chris Nonis and Lalith Fonseka, a director at Mackwoods Securities, acquired the controlling stake. The majority shareholders of Mackwoods Securities claim they knew nothing about the acquisition nor was it approved them.
In his submissions to court, Chris Nonis says Agalawatte Plantations’ board had decided to set up Taprospa in 2008 and invite investors by issuing shares. Accordingly, Chris Nonis and Lalith Fonseka invested in the 60% stake in 2011.
He says the Agalawatte Board “was fully aware of the terms and conditions on which the aforesaid share allotment was made, and more particularly that Taprospa Resorts would be inviting other investors at periodic intervals, as and when required, and that the same would invariably result in a reduction of the shareholding of Agalawatte Plantation”.
Chris Nonis maintains that Taprospa is not controlled by Mackwoods Securities, and therefore does not concern its majority shareholders and pleaded court to dismiss his aunt Mary Varma’s plaint.
“The Petitioner (Mary Varma), admittedly not being a shareholder of Taprospa Resorts (Private) Limited, has no right in law to complain of matters pertaining to it and cannot therefore falsely and maliciously plead matters irrelevant to the purported application under Section 224, 225 of the Companies Act, and the purported application of the Petitioner should be dismissed for this reason alone.”
He made the same argument for APL Teas.
Mackwoods wasn’t the only British firm N S O Mendis acquired. He bought over a company called Lewis Brown, which controlled the form now known as Delmege Forsyth, a newspaper company Times of Ceylon and Mackinnon Mackenzie. He kept these businesses separate.
Mendis’ son Ricky, who was appointed to the Mackwoods board in 1975, had to leave the family business over a dispute with his father.
N S O Mendis, however, bequeathed his son control of Lewis Brown, which controlled Delmege Forsyth. Thirty two years later, Ricky Mendis sold the company for Rs3 billion to Dhammika Perera who controls several listed companies, including diversified Hayleys Group. Perera dropped the little-known Lewis Brown company name and opted to call the group Delmege Forsyth. The company’s primary activity is distribution, but it has other ventures in consumer goods, healthcare, exports, insurance brokering, leisure and logistics.
In 1991, when N S O Mendis’ wife passed away, intestate her Mackwoods Securities shares went to her three children, each inheriting 2,770 shares (around 7.2% of total shares today). With these shares, Ricky Mendis made a stake for the company.
Chris Nonis, in his submissions to court, says his uncle Ricky Mendis “sought to harass his sister, the late Sriyani Nonis (Chris Nonis’ mother), who was then the chairperson of all companies commonly known as Mackwoods Group by threatening to bring a purported shareholders action against her”.
The nephew alleges that his uncle enticed several Mackwoods staff away, and several agencies were removed, and influence was used to acquire assets belonging to Mackwoods Securities.
Due to a personal bereavement, Ricky Mendis withdrew his threat to take shareholder action against his sister, leaving him “bitter about the affairs of all companies commonly known as Mackwoods Group and to wreck vengeance against the rest of the family members”, Chris Nonis said in his submissions to court.
Ricky Mendis continues to be paid dividends from Mackwoods Securities on account of the shares he holds.
Chris Nonis told the High Court of Colombo that his uncle Ricky Mendis and sister Nirmali Samaratunga are conniving with his aunt Mary Varma to take control of the board.
Sriyani Nonis, before her demise in 2005, had written instructions that Chris Nonis should become Chairman of Mackwoods Securties.
Since the early eighties, Chris Nonis had studied medicine in the UK, researching and specializing in hepatology (the study of the liver, gallbladder, biliary tree and pancreas). He set up the HPB surgical unit at the Royal Free Hospital, and had a wide public and private referral practice for live liver transplants in the UK. Chris Nonis was appointed to the Mackwoods Securities board in 1989.
Sriyani Nonis’ eldest daughter lives in the UK. Sriyani Nonis’ second daughter Nirmali Samaratunga was appointed to the board in 1987, two years before Chris Nonis. A Fellow of the Chartered Institute of Management Accountants UK, she held consultative positions in the Central Bank, several government economic councils and became the first female president of the National Chamber of Commerce of Sri Lanka in 2005.
Sriyani Nonis had incorporated at least one company, APL Teas, to include her youngest daughter lawyer Shalendra Ranaweera in managing the family’s business. She was also appointed a Mackwoods Securities director.
Chris Nonis and his uncle Ricky Mendis declined to give interviews, and Nirmali Samaratunga did not respond to the request. They are cagey because of the ongoing court cases, so it’s difficult to understand when the wheels started coming off. On the surface, it seems all was well with the family until now.
Court submissions by both parties reveal that Mackwoods Securities has not held an Annual General Meeting since 2008.
Court documents reveal Mackwoods Securities’ balance sheet for 1990. The company’s assets then were Rs7.6 million, of which Rs6 million were reserves. No income statements are filed either. Several dividend payment invoices have been filed. In 2013, a 100% dividend was declared, which estimates profits at Rs4.5 million.
Since 2014, the two listed firms Agalawatte Plantations and Mackwoods Energy controlled by the family business Mackwoods Securities started making losses.
The majority shareholders accuse Chris Nonis for the steady decline. Chris Nonis argues why none of them as directors ever raised issue before. He also points out that Nirmali Samaratunga was appointed Co-Chairman of Mackwoods Securites during the period between 2011 and 2014 when he spent most of his time in London as Sri Lanka’s high commissioner there.
Nonis argues that his aunt Mary Varma was “shielding” his sister Nirmali Samaratunga, and that none of them as directors could claim they knew nothing about the businesses they were supposed to be managing.
Agalawatte Plantations’ profits have been declining since 2010, reporting a Rs189 million loss in 2014. The loss doubled to Rs405 million in 2015. The annual report attributes the losses to falling tea prices and rising costs, which have not spared many high-grown tea plantation companies. By end-June 2016, losses for the half year amounted to Rs186 million.
Listed Mackwoods Energy controlled by the firm made a profit of Rs20 million for the 2014 financial year, down from Rs40 million a year earlier. In 2015, the company reported Rs9.4 million loss due to delays in finalizing power purchasing agreements with energy utility Ceylon Electricity Board for all seven of its mini-hydro power plants.
Soon after the botched special meeting in May 2016, failing to get board sanction for the EGM, Nirmali Samaratunga, her uncle Ricky Mendis and aunt Mary Varma called the EGM for July 7 at a Colombo hotel.
The majority shareholders were ready to appoint their three nominees, former Army Commander Rathnayaka, corporate lawyer Attanayake and business leader Tittawela, thanks to Mary Varma’s plea to the High Court of Colombo for an interim order against the board preventing it from blocking the EGM.
The EGM commenced, but ended in a way the majority shareholders did not intend.
Chairman Chris Mendis proposed that the majority shareholders’ nominees to the board could not be appointed because of the four ongoing court cases. At this point, one of the directors, Lalith Fonseka upped and left the meeting. The EGM just lost its quorum. Fonseka is also the company secretary and needs to be present for the EGM.
The majority shareholders failed in their bid to regain control of the board.
That same afternoon, the Mackwoods Securities board met at another five-star hotel. Mary Varma and her niece Nirmali Samaratunga did not attend the meeting.
The remaining directors, Chris Nonis, his sister Shalendra Ranaweera, and the two directors not related to the family Lalith Fonseka and Lakshman Samarasinghe appointed two members to the board—Kshama Soza and Yamuna Chithranganie Sirimanne Hettiarachchi—as allowed by the articles of Mackwoods Securities.
What happens next will be decided in court